Conflicting signals from govt ahead of REC initial public offer

New Delhi: Key functionaries of the government, which owns Rural Electrification Corp. Ltd (REC), sent out conflicting signals about the company’s planned share sale in the wake of uncertainties in the markets that have already scuttled two recent, high-profile initial public offerings (IPOs)—those of developer Emaar MGF Land Ltd and health-care firm Wockhardt Hospitals Ltd.

While Union power minister Sushil Kumar Shinde said the government would “watch the market for the next two-three days” before taking a decision, power secretary Anil Razdan said the government was “not considering any postponement” of the issue. Shinde did not elaborate on the government’s possible course of action, but said he was not denying the possibility of extending the dates of the IPO. “We will examine whether the time is right for the issue.”

REC is one of the country’s largest lenders to the power sector. It plans to sell 156 million shares, or 18.81% of its equity, in an IPO that will open on 19 February and close on 22 February. The price band for shares of face value of Rs10 each has been fixed at Rs90-105. IL&FS Investmart Securities Ltd, ICICI Securities Ltd and SBI Capital Markets Ltd are the book running lead managers to the issue.

Shinde said he was concerned about the market trend and that he had called the REC “chairman for discussing the present market scenario and the IPO whenever he is back.” REC chairman and managing director A.K. Lakhina is in Boston attending a roadshow for the IPO and could not be reached for comment.

Lakhina had said on 8 February that he expected REC’s issue to do well because the company’s “track record is impressive.” Razdan said the REC offering “would be a stabilizing factor for a choppy market.”

REC is the third state-owned power firm looking to make an IPO—Power Finance Corp. and Power Grid Corp. of India Ltd got listed last year.

According to merchant bankers to the issue who did not wish to be identified, REC hopes to raise Rs1,639 crore “at the upper end” of the proposed price band. A senior executive at SBI Capital, said: “We will probably go ahead with the issue as per schedule. Whatever the market conditions be, we are very confident. We do not have any information on extending the dates.”

Reliance Power Ltd’s IPO was subscribed 73 times, but the shares ended Monday, the day of listing on the Bombay Stock Exchange (BSE), at Rs372.30 each, a 17% discount to the Rs450 issue price. They ended Wednesday at Rs351.40 each, while the BSE Sensex rose 2% to 16,949.14 points.

“In the past, public sector stocks have always given good returns, but the last few days have been very choppy. There is a negative sentiment towards power stocks. Due to this, there will be a negative impact on the REC IPO,” said Kuljit Singh, partner at audit and consulting firm Ernst and Young.